Friday, March 25, 2011

Organized Crime: "Yakuza Salivating Over New Construction Boom"

Here’s a number for economists mulling Japan’s post-earthquake trajectory: 17.

That’s Japan’s ranking out of 178 nations in Transparency International’s latest corruption perception index, putting it on a par with Barbados. The odds strongly favor Japan sliding down the list in the next few years. A sudden return to “concrete economics” in a nation that’s tried to shake the phenomenon virtually ensures the return of large-scale graft.

An estimated $309 billion in earthquake and tsunami damage may prompt formation of a reconstruction agency modeled after the Economic Stabilization Board created in the wake of the devastation of World War II.

That board helped power Japan’s postwar boom, one largely built on building. Massive public-works projects that transformed Japan also gave rise to a construction-industrial complex and some notable side effects: surging public debt, a heyday for mobsters and graft. These side effects are about to swell again.
To jolt gross domestic product properly, Japanese officials must not only spend wisely, but impose unprecedented levels of accountability in the process. Money is tight given Japan’s fiscal position. And if Stephen Roach, nonexecutive chairman of Morgan Stanley Asia, is right, any boost from rebuilding may just fade into another “lost decade.”

Graft Boom

The reason is the inefficiency inherent in Japan’s economic system. Spending public funds unwisely limits the multiplier effect, whereby stimulus trickles down and helps households. The nexus between politicians, contractors and yakuza also is where economic reforms go to die. Graft at the highest levels keeps Japan from raising its economic game.

The opportunity to line one’s pocket is a powerful force, and creates a kind of tunnel vision. As Japan plans the needed rebuilding, it must consider the wisdom of lavish spending to recreate communities that were losing relevance before March 11 and are directly in harm’s way for the next tsunami. Huge, costly seawalls proved little help...MORE